The Toro Company (TTC) | The Buildout — AI Infrastructure

The Verdict

Toro makes equipment for two markets. The Professional segment covers turf maintenance, landscape and lighting, snow and ice management, agricultural irrigation, and — the part that matters for the buildout — rental, specialty, and underground construction equipment. The Residential segment sells mowers, snow throwers, trimmers, and blowers to homeowners. The AI infrastructure connection runs through the underground line: Ditch Witch horizontal directional drills, trenchers, and vacuum excavators are the tools contractors use to run power, fiber, and water to data-center sites. Toro does not sell into the data center itself, and management describes data centers as "just one slice" of a wider underground demand set that also includes utilities, broadband, and water. AI also shows up in early-stage autonomous mowers for golf courses and in internal systems for vision inspection, prototyping, and back-office work.

Earnings Beat

Toro reported Q3 FY2026 net sales of $1.23B for the quarter ended around August 2026, up 8.4% and 6.2% organic, with gross margin of 34.1%. Adjusted operating margin was 13.9%, up 30 bps, and adjusted EPS was $1.33. The standout was the AMP productivity program, which management now says will exceed the $125M run-rate savings target by year-end.

Management tone: Management's language moved up between the two quarters. On the Q2 call, AMP was "on track to deliver" its run-rate savings target by end of fiscal year; by Q3 it "will exceed" that target. CEO Rick Olson said he is "confident in The Toro Company's future with Edric at the helm" as the transition to president and COO Edric Funk became explicit on the tape, and Olson closed his FY27 framing saying the company is "really excited about next year." Management was direct about the negatives, stating the professional margin contraction and the reduced IEEPA refund plainly, and it declined to detail a post-AMP successor or an FY27 tariff bridge, keeping forward commentary at "how we're thinking" rather than guidance.

Management Guidance

For FY2026, management guides net sales growth of 6.3%-6.6% and adjusted EPS of $4.60-$4.65, a raise from 4%-6.5% and $4.50-$4.62, with the EPS midpoint up over $0.07 to $4.63. The implied fourth quarter is net sales growth of 3.9%-5.1% and adjusted EPS of $0.93-$0.98. Professional net sales are guided up mid-single digits; Residential is guided approximately flat. The guidance includes $7M of anticipated IEEPA refunds, down from a previously expected $12M, with $5M classified outside Phase 2 and timing uncertain. Free cash flow conversion is guided to at least 120%. Management has not issued formal FY2027 guidance; it expects to do so at the Q4 call, and it has said it expects residential to return to double-digit profitability and does not expect tariffs to have a meaningful FY2027 impact.

Trajectory

Revenue has grown at 8%-plus for two straight quarters — $1.42B in Q2 FY2026 (up 8.1%) and $1.23B in Q3 (up 8.4%) — with organic growth ticking up from 5.7% to 6.2%. Gross margin was 34.1% in Q3 versus 33.7% a year earlier. Company adjusted operating margin expanded 30 bps to 13.9%, driven primarily by AMP, while the two segments moved in opposite directions: Professional fell 40 bps to 20.9% on mix and manufacturing costs, and Residential rose 400 bps to 5.9%. Cash conversion has been strong, with $425M of free cash flow year-to-date at 128% conversion, inventory down $153M and working capital up $217M year over year. The mix shift to watch is in demand: underground and specialty construction organic growth slowed from low double digits to mid-single digits, and golf shipments declined modestly.

The Model

The model projects FY+1 revenue of $5,080M and EBITDA of $848M, a 16.7% margin, and FY+2 revenue of $5,375M and EBITDA of $924M, a 17.2% margin. The near-term case rests on AMP productivity carryover into FY2027, pricing, and the Ditch Witch capacity addition, with residential sales guided approximately flat in FY2026. FY+2 depends on the residential segment returning to double-digit operating margins, new product contribution including the Reelmaster 5010-H autonomous mower due next spring, and whether the underground business re-accelerates once the capacity investment is in place.

Projections are the median of 5 independent model runs. The model’s revenue sits 1.9% above analyst consensus.

For FY2026, management guides net sales growth of 6.3%-6.6% and adjusted EPS of $4.60-$4.65, a raise from 4%-6.5% and $4.50-$4.62, with the EPS midpoint up over $0.07 to $4.63. The implied fourth quarter is net sales growth of 3.9%-5.1% and adjusted EPS of $0.93-$0.98. Professional net sales are guided up mid-single digits; Residential is guided approximately flat. The guidance includes $7M of anticipated IEEPA refunds, down from a previously expected $12M, with $5M classified outside Phase 2 and timing uncertain. Free cash flow conversion is guided to at least 120%. Management has not issued formal FY2027 guidance; it expects to do so at the Q4 call, and it has said it expects residential to return to double-digit profitability and does not expect tariffs to have a meaningful FY2027 impact.

What Could Go Right — and Wrong

Looking Ahead

The next twelve months turn on the December 2026 Q4 call, where management is expected to convert its verbal FY2027 framework into formal guidance — residential back to double-digit profitability, AMP carryover, and continued margin expansion. Before that, management presents at the D.A. Davidson conference on September 17, 2026. The Reelmaster 5010-H autonomous mower is due next spring, the first test of whether the "hundreds" of autonomous units placed become a disclosed revenue line, and the Ditch Witch capacity investment is the item to watch for whether underground growth was capacity-gated or demand-gated.

Financials

Annual Summary

Key Ratios (Trailing)

The Company

Toro designs, manufactures, markets, and sells professional turf maintenance equipment and services, turf irrigation systems, landscaping equipment and lighting, snow and ice management products, agricultural irrigation systems, rental, specialty, and underground construction equipment, and residential yard and snow-thrower products. Its stated purpose is "to help our customers enrich the beauty, productivity, and sustainability of the land." For the AI buildout, the part that matters is the underground construction line inside the Professional segment — Ditch Witch horizontal directional drills, trenchers, and vacuum excavators. Toro does not sell into the data center; it sells the equipment contractors use to bring power, fiber, and water to it. Management's framing: "It's not so much the work that's done on the site. It's the work that's done to get the data, the power and the utilities to the site."

The company reports in two segments, Professional and Residential, and runs its own manufacturing base — U.S. sites across Arkansas, California, Florida, Iowa, Kentucky, Michigan, Minnesota, Nebraska, Ohio, Oklahoma, Texas, and Wisconsin, plus international plants in Australia, Belgium, China, Germany, Italy, Mexico, Poland, Romania, and the United Kingdom. Brands include Toro, Ditch Witch, eXmark, Spartan, BOSS, Ventrac, American Augers, Subsite, HammerHead, Radius, Perrot, Unique Lighting Systems, and Irritrol in Professional, and Toro, Hayter, and Lawn-Boy in Residential. Tornado Infrastructure Equipment, a Calgary-based hydrovac excavation manufacturer, was acquired on December 8, 2025. Toro goes to market through dealer and distributor networks and through mass retailers, hardware retailers, and home centers; the Lowe's partnership is credited with supporting residential growth, and the Red Iron Acceptance joint venture with Huntington Distribution Finance finances dealer and customer equipment purchases.

Business Segments

Competitive Landscape

The competitive picture in Toro's own material is thin. The 10-K carries a single supply risk — "Disruption and/or shortages in the availability of commodities, components, parts, or accessories has, and could continue to, adversely affect our business" — and an empty sole-source disclosure list, and the competitor names in this evidence set come from the supply-chain wiring graph, which reports zero documented quotes behind any relationship. On the product level the record offers two differentiation signals: the JT21 drill is described as "replacing the de facto standard in the marketplace already, but we have made it better," and the HammerHead Bluelight pipe-relining system is described as patented, curing "up to 5x faster than traditional steam, hot water or ambient air methods."

Supply Chain

Toro sits one layer back from the data center: it supplies the underground equipment contractors use to build the utility routes. Nothing in the source set has a neighbor naming Toro or its brands, so the counterparties below are inferred from a wiring graph that reports zero documented quotes.